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NepalFOREIGN TRADE, NEPAL
Nepal's traditional trade was with India (see
table 12,
Appendix). In the 1950s, over 90 percent of its foreign
trade was
conducted with India. Goods moved by land for at least a
few
hundred kilometers through India, and a good relationship
with
India was essential for the smooth transport of goods to
and from
foreign countries
(see Relations with India
; ch. 4;
India
, ch. 5).
Most of Nepal's basic consumer goods were imported from
India, and
most of its agricultural exports went to India. India also
met the
basic needs of Nepal's industries with supplies of coal,
cement,
machines, trucks, and spare parts.
The March 1989 impasse in negotiations for trade and
transit
treaties with India seriously damaged Nepal's economy (see
table 13, Appendix). The transit treaty had allowed goods from
third
countries entering at Calcutta to pass through to Nepal
and
exempted them from customs and transit duties. The treaty
allowed
trade to transit at twenty-one border points, and primary
commodities were essentially duty-free in both directions.
Imports
from India had no quantitative restrictions and low
tariffs.
As a result of the breakdown in negotiations, only two
trade
and transit points remained open--both in eastern Nepal.
Nepal's
exports to India were subjected to high tariffs, and
imports from
India also carried increased costs. The dispute was not
solved
until June 1990 when Kathmandu and New Delhi agreed to
restore
economic relations to the status quo ante of April 1,
1987.
Although India remained an important trade partner in
1991,
foreign trade with India has been on the decline vis-à-vis
other
countries since 1960. Trade with India decreased from more
than 70
percent in 1975 to about 27 percent of total trade in
1989.
However, the trade deficit with India in this period
increased at
an annual rate of about 11 percent.
To increase exports, Kathmandu introduced some fiscal
and
monetary measures, including the Export Entitlement
Program and the
Dual Foreign Exchange rate, along with cash grants, income
tax
rebates, and low tariffs. Until the trade and transit
dispute of
1989, exports had increased by 11 percent or more per year
since
1975. Nepal's major exports were clothing, carpets, grain,
and
leather goods. In 1989-90 the carpet industry was
responsible for
producing 54 percent of Nepal's exports. In FY 1988, India
received
38 percent of Nepal's exports; the United States 23
percent,
Britain 6 percent, and other European countries 9 percent
(see
table 14;
table 15, Appendix).
Imports increased at a faster rate than exports. Since
the
1970s, the foreign trade deficit had increased in most
years.
Nepal's primary imports were petroleum products,
fertilizer, and
machinery; boots and shoes, cement, cigarettes, iron and
steel,
medicines, salt, sugar, tea, and textiles were the other
chief
imports. India supplied 36 percent of imports, Japan 13
percent,
European countries 4 percent, and the United States 1
percent in FY
1988. Receipts from service and transfer payments were
insufficient
to finance trade deficits. This imbalance has resulted in
an
increase in the current account deficit (see
table 16;
table 17,
Appendix).
In March 1989, the government introduced the Open
General
License as a step to support the Structural Adjustment
Program. It
included inputs for existing industries--raw wool, cotton
yarn, and
cotton fabrics. The program also allowed supports for
petroleum
products, coal, tractors, buses, and trucks, as well as
for some
household items, such as ovens and toasters. In May 1990,
however,
Kathmandu deleted all goods except raw wool, cotton yarn,
petroleum
products, coal, and newsprint from Open General License
imports.
The government also introduced an auction system for
the import
of goods. The goods were classified in three categories:
industrial
raw materials, semiluxury items, and luxury items.
Premiums were
assigned and foreign exchange quotas allocated for each
category.
The premium for raw materials was lower than that for
luxury items.
Data as of September 1991
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